Industry
Wanted: A new owner for Yes Bank
Summary
- Sale will give exit to SBI, LIC, others which had come in as shareholders in 2020
MUMBAI : Private sector lender Yes Bank Ltd is looking for a new promoter to sell up to 51% stake, and has hired Citigroup’s India unit to find a buyer, two people aware of the development said. The bank has also invited some Indian lenders, including some of its existing shareholders, to join as promoter.
Yes Bank, India’s sixth largest private lender by assets, is seeking a valuation of $8-9 billion, which would be 20-25% above its current market capitalization of $7.2 billion, the people said on condition of anonymity.
“Some banks and financial institutions in Japan, West Asia and Europe have been approached with an offer to sell at least 51% in Yes Bank. The discussions are at an early stage," the first person said. The second person said some Japanese banks have already started due diligence.
To be sure, any new promoter holding more than 26% stake will require special approval from the Reserve Bank of India (RBI), the second person added. This is because central bank rules say that normally, a promoter can hold up to 26% in a private bank, but it may also permit a higher shareholding under circumstances such as relinquishment by existing promoters, supervisory intervention, reconstruction/restructuring of banks, entrenchment of existing promoters or any other action in the interest of the bank.
A stake sale will provide a much-awaited exit to Yes Bank’s big shareholders including State Bank of India (SBI), Life Insurance Corp. Of India (LIC), HDFC Bank Ltd and ICICI Bank Ltd. These institutions were brought in to rescue Yes Bank in 2020, after the RBI seized the lender which was then on the verge of collapse under its previous management. Currently, SBI is Yes Bank’s largest shareholder with 29% stake.
“SBI has assured the appointed investment banker for the deal that the incoming promoter will get up to 51%, so that there is no ambiguity over management of day-to-day business processes," the first person said.
A Citigroup spokesperson declined to comment, while emails sent to Yes Bank and SBI did not elicit any response.
Yes Bank’s deposit base has swelled from ₹1 trillion in March 2020 when RBI superseded its board to at least ₹2.4 trillion now, of which a large part comprises low-cost deposits under current and savings accounts. The bank manages assets worth about ₹3.8 trillion. The share of retail, small and medium enterprises loans, seen as safer than large corporate advances, has gone up to 63% now from just 36% in March 2020.
Yes Bank’s profits and net interest margin have improved since the ownership change. In the quarter ended December 2023, the bank posted a 349% year-on-year jump in net profit at ₹231 crore. The bank’s NIM was at 2.4%, better than previous quarters.
“For the deal to go through, valuation will be crucial, since Yes Bank’s performance after SBI taking over in 2020 is perceived to be far better than what is reflected in the prevailing stock price. The deposit base has grown significantly over the past three years," said the first person cited above.
Yes Bank’s shares have traded between ₹14 and ₹32.8 over the past one year, and closed at ₹20.96 on the BSE on Wednesday, down 8.19%.
“Yes Bank rightly got into a conservative mode after RBI superseded its board in 2020. If a new promoter and top management come in, it may put the bank back into a faster growth trajectory. A new promoter may help the bank compete more aggressively against private peers, help price its products and services better, and this may speed up the bank’s growth," a third person added.
The sale will also depend on how potential investors perceive the quality of Yes Bank’s loans. “Some are still sceptical about Yes Bank’s corporate lending book. This may have a bearing on the deal," said the first person. That said, in December 2022, Yes Bank transferred ₹48,000 crore worth of bad loans to JC Flowers ARC, in an attempt to clean up its balance sheet.
An ownership change may create a more aggressive private lender, signalling higher competition for rivals and better priced products for borrowers. “If a new promoter comes in, the bank may start offering higher rates on deposits and friendlier terms for loans. This will intensify competition and narrow the gap in terms of asset size with top private sector banks," said the third person. A new promoter may help change borrowers’ perceptions about Yes Bank.
“This will depend on the brand of the potential acquiring bank. But a global name may definitely help. Ultimately, the customers have to be benefited, and RBI, Sebi and CCI have to approve the deal," said the third person.
“The plan for Citigroup is to bring in an acquirer in FY25. More than in India, overseas banks are finding the deal more interesting, given the projected growth in the domestic economy and hence the lending," said the second person.
In March 2020, RBI seized Yes Bank, which was then led by its founder and CEO Rana Kapoor. At the time, its gross bad loans were as high as 16.8%, and the liquidity coverage ratio (LCR)—essentially the bank’s ability to meet immediate short-term repayments—was as low as 37% of total cash outflow over the next 30 days then.
The central bank then got SBI, LIC and other banks to join as Yes Bank’s shareholders. SBI initially owned around 49% in Yes Bank, but following a ₹24,000 crore fund-raising, its stake fell to 26.13% in 2022. SBI was required to maintain a stake of at least 26% in Yes Bank for three years (that is, till March 2023).
According to SBI officials, the bank had made up its mind to exit Yes Bank, which it had bought at ₹10 per share, once the lock-in period ended. However, it was waiting for the right time to sell its shares.
The deal may also provide an exit to other existing shareholders apart from SBI. Verventa Holdings Ltd (an affiliate of Advent International) and CA Basque Investments (owned by The Carlyle Group) hold 6.43% each in Yes Bank.
“Private equity investors in the bank are ready to monetize their stakes," said the first person, adding that some of the private banks too are open to trimming their stakes at the right valuation.
The country's top two private lenders HDFC Bank Ltd and ICICI Bank Ltd hold 3% and 2.61% respectively in Yes Bank. Other key shareholders include the country's largest insurer LIC (4.34%), Axis Bank Ltd, Kotak Mahindra Bank Ltd and IDFC First Bank Ltd.
The confidence among investors has clearly improved and this helped the bank raise enough capital to make provision for bad loans and expand books in retail and small business loan space.
